Adobe Systems (ADBE ) shares fell Monday after the software maker said it should meet its fiscal third-quarter earnings targets, but warned that revenue could be hurt by slowing sales across its product lines.
UBS Warburg reiterated its strong buy rating on Adobe stock on the news. Analyst Benjamin Reitzes says while EPS estimates remain unchanged, he cut this third quarter revenue estimate to a decline of 7%, and fourth quarter revenue should be flat. However, he thinks July weakness in the U.S. may not be indicative of a trend, as August is usually a better month due to the education market.
Reitzes recommends purchase of ADBE shares at current levels. He says all points from his recent upgrade are still on track: 1) revenue set to bottom in the fourth quarter; 2) new products set to be released by fourth quarter; 3) Adobe to hit EPS; 4) easier comps in the first quarter. He believes the company is in the process of bottoming here in the second half and has significant operating leverage heading into any U.S. economic recovery down the road.